SGS 3 (EoD) Flashcards
What is an event of default?
sets out L’s remedies if B breaches any clause in the loan agreement or if another specified event in the EoD clause occurs
What is the compromise amendment for a non-payment clause?
2-3 day grace period to correct any technical errors in payment.
What is the purpose of a financial covenant?
projects lender by providing warning sign as to B’s financial health.
If not a separate undertaking would fall within ‘breach of other obligations’ and be subject to a blanket grace period.
What is a typical grace period for an ‘other obligations’ clause?
What is often excluded from such a clause?
15-30 days.
Certain obligations which are too serious e.g. breach of negative pledge.
To whom does an insolvency proceedings clause generally apply?
Any Member of Group.
Frivolous pr vexatious subject to crave out time period e.g. 14 days
Analogous jurisdictions (trade activities may be elsewhere / Group could have assets abroad).
What is the purpose of and what are the points of contention in a creditors’ process clause?
Allows L to exercise remedies if assets are being pursued by another creditor.
Aggregate value
Time period for discharge
What are the points of contention in an MAC clause?
L believes B could OR will have a MAE (discretion vs certainty)
Reasonable OR merely opinion of L
Material OR all obligations
MAC Clause use?
Rarely used to accelerate as difficult to prove bank justified in calling EoD and if not, lenders liable for breach of loan agreement.
Often used to trigger draw stop and force B to negotiate.
Points of contention in a misrepresentation clause?
Borrower wants limited to WRITTEN representations
and incorrect or misleading in a MATERIAL respect.
How does default vs acceleration wording differ?
Default automatically triggered by L1’s right of action ARISES.
Acceleration only triggered if L TAKES further ACTION.
Why is purely cross acceleration wording not acceptable to Lender?
waiting for another lender to accelerate does not give L sufficient warning about problems.
Other lender may be restructuring the loan, getting more security etc, could weaken financial position of Borrower, impacting ability to meet repayments under the loan.
Financial Indebtedness contention in cross default clause?
B wants to exclude trade creditors
L wants to include as defaults under trade agreements could have a serious effect on borrower and excluding would be too risky.
What are the Lender’s remedies on EoD?
waive
accelerate
restructure / renegotiate
draw stop / suspend
Enforce security
If L waives an EoD how should it go about it?
Limit time period
charge a fee
potentially renegotiate / increase margin on loan
(before waiving needs to obtain sufficient info about nature and cause of problem).
What three actions can the Lender take under acceleration?
cancel undrawn commitments
demand immediate
repayment of some / all of outstanding loans + accrued interest and fees
place outstanding loans on demand (repayable on notice)
